LEGAL & GENERAL: WELL-PLACED FOR NEW PENSIONS REGIME
Today's Budget changes to the annuity market will have far-reaching consequences for the accumulation and decumulation of pension savings for individuals who need a secure income in retirement.
For consumers there will be greater choice and the need to make bigger decisions about their retirement provisioning. For Legal & General our comprehensive suite of individual retirement solutions including protection, drawdown, DC funds, Unit Trusts and ISAs will ensure that we are well-placed to service successfully these choices and decisions.
The changes, which affect individual annuities only, represent a further transfer of risk - the government is effectively transferring longevity risk, or the risk of outliving pension savings, to the individual. We expect that savers will therefore increase provisioning for their retirement.
Increase in accumulation expected
Pension "pots" will now become more accessible, but these reforms have no effect on the fundamental issue for the UK, which is that pension savings remain too low. We expect pension savings, and hence the total pool of DC pension savings assets to grow. LGIM, as a leader in pension fund management with £450bn of assets under management, and Cofunds, as a market-leading savings platform with £64bn AUA, are well-positioned to benefit from increased savings rates.
To avoid individuals over-spending in early retirement and running short in later retirement, contribution rates into pensions, including via auto-enrolment need to rise and, in the absence of guaranteed lifetime incomes, the time spent in retirement needs to be shortened. The government therefore needs to bring forward the planned higher contribution levels under auto-enrolment, institute a fairer, less regressive tax regime for the accumulation phase of pension saving, and accelerate the rise in the retirement age.
Well-placed to adapt to more flexible decumulation
Today's introduction of greater flexibility extends the choice that is already available to wealthier pensioners to all savers, for example through providers including Legal & General's Suffolk Life. Greater flexibility however also creates greater responsibility. People are living longer, and it is more important than ever that retirees do not exhaust their pension savings during their lifetime, potentially at the point when they start to incur care costs.
Legal & General is well-placed to continue to develop a product suite that includes good-value drawdown and protection against longevity risk as well as provision of investment income. The guidance regime outlined by the Chancellor will be vital in ensuring that many pensioners do no make choices they subsequently regret.
Legal & General's Retirement Solutions business is broad-based, with £21.1bn out of a total of £34.4bn annuity assets derived from corporate transactions, which are outside the scope of the new regulations.
Our cash guidance of Operating Cash of £290m (2013: £260m) for Legal & General Retirement given at Preliminary Results on 5th March for 2014 remains unchanged.
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